Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. In the last couple of days the pair made a modest recovery to 1.8625 but appears unsure of where to go today.
At the moment, there is one major source of uncertainty when it comes to the British pound, and it has to do with good old Brexit, an issue many investors had all but forgotten about. Many had anticipated that Brexit would be bad for the UK economy, but due to the coronavirus pandemic, all of the Brexit damage got swept under the rug, or is at least indistinguishable from the Covid-19 damage, so the markets are not talking about it.
But now, the United Kingdom and the EU have renewed the spat over Northern Ireland and the Brexit agreement. It was a point of contention during the negotiations, and the final Brexit agreement, which the EU and the UK signed, ordained that Northern Ireland would continue to adhere to EU trade standards in order to trade freely with the Republic of Ireland, an EU member state that Northern Ireland has an incredibly close relationship with. This pushed the hard border between the two Irelands to the sea, separating Northern Ireland from the rest of the UK, which now has its own regulations and standards. But the latter don’t always meet EU criteria and there have been issues with goods getting held up before they can enter Northern Ireland, which is a problem for the domestic economy of the United Kingdom.
There is a deadline on June 30, which the UK unilaterally imposed regarding Northern Ireland following either the UK’s or the EU’s trade regulations, and now both sides are back at the negotiating table. If Boris Johnson insists that Northern Ireland needs to follow UK standards, that would be a violation of the Brexit agreement and could make the relationship between the UK and the EU really hostile.
With both countries doing well regarding Covid-19 and vaccinations, and their respective recovery processes, this Brexit uncertainty is hurting the British pound more than it is affecting the euro.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8617, with the pair currently trading slightly below it. The daily support levels lie at 0.8594 and 0.8565. The daily resistances are at 0.8646 and 0.8669. The indicators of technical analysis are a bit mixed but lean towards recommending a buy position today.
